Why is it so Hard to Hire During the Recovery?

Our soon to be published TalentWatch® research for Q4 2010 shows a tremendous growth in hiring going on: in mid 2010 32% of organizations cited talent shortages as critical to growth; this month that number jumped to 51%, and increase of almost 50%. In the same survey we asked employers to tell us how ready their new workers are to perform, and we found that “quality of hire,” measured by managerial satisfaction with the capabilities of new employees, dropped by 17% from a year ago.

Why, when there are almost 15 million unemployed, is it so hard to hire good people?

This job market is different.  While there are no shortcuts, there are an amazing number of new tools and approaches revolutionizing the recruiting industry today.

Let me discuss the issue of hiring today.

Resume Overload.

  • In a robust US economy, the unemployment rate is around 5% – which means that approximately one person in 20 is looking for work. Today that number is one in ten, which means that for every job open, there are at least twice as many people applying for positions.
  • Research by Dale Mortensen, Peter Diamond, and Christopher Pissarides (recently awarded the Nobel Prize for modeling the labor market) shows that during a recession employers do not “lay people off” more than normal, but rather reduce the amount of hiring.   They also found that large government entitlement programs also prolong unemployment, because they both reduce job seeking and penalize employers for hiring.  (When an employer has to lay off someone, they pay unemployment insurance for the next year- and today in the State of California that rate can go as high as 5.2% – so as the unemployment insurance goes up, employers become more picky about hiring.
  • What this means is that employers today are getting 5-10X the number of resumes for any open position than they would under normal conditions.   Companies like McDonald’s, 7-11, and other retailers report receiving 300-500 resumes for each position within the first few weeks.

Recruiter Fatigue and Over-Screening

  • With so many resumes received, recruiters are now forced to more heavily screen candidates.  This means that applicant tracking systems, assessment tools, and resume parsing tools are being used more and more heavily to “weed out” inappropriate applicants.  The result is that recruiters must work harder than ever to identify the “best” candidate – resulting in an actual decrease in quality of hire.

Recruiter Fatigue Raises the Bar for Job Seekers, but Not Enough Job Seeker Tools Exist Yet

  • As a result of this difficulty in finding work, job seekers are now looking for new alternatives.  New tools and services for job seekers (JobFox, Monster.com, SourceRight, and many others) are now starting to help job seekers better target employers and get past the “resume gateway” created by recruiters.
  • Video interviewing, Skype, and social networking (more below) have started to revolutionize the process – giving both recruiters and job seekers new avenues to learn about employers, apply for many more jobs online, and essentially “raise the arms race” to get in front of potential employers.
  • Despite these trends, there are still few tools for job seekers.  One individual I spoke with (a senior IT professional) told me he spent almost a year applying for IT positions in the New York area and had hardly any responses at all.  After nearly giving up, he eventually hired a consultant for thousands of dollars who scans all available job openings in the NY/NJ area and they found him a position.
  • So the problem today is that the traditional “matchmaking” process of job seeker to employer has been broken down by the high levels of unemployment in the market.
  • We believe that the $2+ billion market for talent acquisition tools and services (which is mostly focused on employers) is going to be totally upset in the coming years as venture capital and funding starts to focus on providing tools for job-seekers.  One good friend of mine has just developed an innovative solution of this type (I wont disclose it now) and he has found a huge market among job boards and recruiting websites for tools to help people pinpoint and find the “right” position.

Great Candidates are Less Mobile

  • Adding to these problems, high-performing workers (who can always find good jobs) are less mobile.  Because of depressed house prices, far fewer people are willing to relocate to find the position of their dreams.  This again reduces quality of hire – because it forces employers to “settle” for candidates that may be more mobile.
  • Lack of physical mobility is cited as a major factor in the Nobel Prize labor models I discussed earlier – and is in fact one of the biggest drivers of unemployment.  Countries that have high levels of local community living (e.g. Germany, for example), suffer much more sticky unemployment rates for this exact reason.  Right now the US is going through this problem.

So What is a Recruiter or Job Seeker to Do?

I believe this difficult labor market has given rise to a radical transformation in the world of recruiting.  Just as e-learning revolutionized training ten years ago, today these forces, coupled with social networking, are revolutionizing the world of recruiting.  Consider just a few important new trends:

  • Social networking has revolutionized the recruiting process already.  Companies like 7-11 or Hyatt, which now use Facebook and other social networking tools to hire service workers, have seen their cost per hire drop from $1,000-3,000 on traditional job boards to less than $50 per hire today.
  • Recruiters are now re-learning the tools of sourcing.  LinkedIN, which now has 80 million online professionals, (growing at 12,000 per day), started to offer LinkedIN Recruiter earlier this year.  Employers have told us that they are now sourcing 1/3 to 1/2 of their jobs directly, going around traditional recruitment firms at a fraction the price.  This requires a new set of skills and disciplines within HR – but these are skills well worth developing.
  • Online assessment tools and reference checking tools (SkillSurvey, and Checkster, for example) are exploding.  Companies in healthcare, retail, hospitality, and other high volume hiring industries are finding that they can refine their candidate pools by 10-20:1 for tens of dollars per applicant.  Companies like Previsor, KenexaProfiles International, SHL, and DDI and others in the assessment industry are greatly benefiting from this trend.
  • Employee branding is becoming a huge and critical initiative in all businesses.   As companies like Glassdoor and Twitter now make it easy for any employee to “disclose” what a job or company is REALLY like, it is becoming critically important for employers to get their employment brand together.  (Most large employers now monitor Twitter carefully for all references to their company and brand – for both employment branding and customer service reasons.)
  • We are soon to publish a fascinating study which shows how Regeneron, Cabellas, Ikea, and several other name brands completely changed their recruiting model from a “funnel” to a “tunnel” by focusing heavily on their employment brand.  An employment brand is not just a website:  it is a soul-searching exercise to understand your true company culture – and translate this into messages and attractive offers which bring the right candidates to you.
  • Referral programs, alumni programs, and contingent work programs are exploding.  Accenture, which plans to hire 60,000 people next year, told us that they spend 2-3 years cultivating candidates – using a process they call “farming” – to go out and find technical professionals and teach them about Accenture during their career, so that when the time comes for them to find a new position, they come to Accenture for work.

We introduced our Talent Acquisition Practice earlier this year, designed to specifically help employers and job seekers understand best-practices, trends, benchmarks, and solutions in this important area of business.  The world of recruiting is going through a lot of change – now is a wonderful time for HR professionals to learn about these new tools and help grow your company by attracting the best people.